in Mobile Gaming

#G5 Entertainment: Valuation check

G5 Entertainment’s CEO Vlad Suglobov will soon tell us how his company has fared in the exciting holiday season of 2012. Usually, G5 publishes its preliminary numbers a few days after the end of each quarter. This means that we might get a press release as soon as Thursday/Friday this week. For FY 2012, G5 has previously targeted revenues of SEK 87m and an EPS of SEK 3.20. Judging from our ranking checks and the overall good development of the app store sales during Christmas, we believe the revenue target is certainly within reach. It should not come as a surprise, however, if we see EPS coming in at closer to SEK 2.80, given the performance of the first 9-months of 2012.

What’s more important than the past is the company’s prospects for 2013 and beyond, so any comments in that direction from Mr Suglobov in connection with the preliminary results release would be highly appreciated.  He has been clear about his mid-term goal for the company: “The company targets revenues SEK 300m and an EBIT of SEK 100m in a couple of years. Furthermore, management aims to keep the group’s long-term average revenue growth at 2010/2011 levels going forward”.

Assuming 90% growth p.a. (in-line with recent history) in combination with an assumed 30% EBIT margin, we believe G5 will be able to realize an EPS of SEK 5.21 in 2013. To illustrate our thinking we have made the following sensitivity analysis:

We also continue to argue that a company that grows at the pace that G5 is doing and with such a profitability level should be trading at at least 15-20x 12-months forward looking earnings. This would imply a reasonable share price of SEK 75 – 100 based on expected 2013 earnings. As you can see in the graph above, applying a PE-ratio of 15x on the expected EPS level of SEK 5.21 implies a fair share price of SEK 78.

In our constant digging after new information and market research, we have come across another listed pure-play mobile gaming company called “Gamevil“, which is traded on the South Korean Stock exchange. Gamevil is expected to have 2012 revenues of around USD 66m and with a debt free balance sheet and an EBIT margin of around 37% it is rather similar to G5 Entertainment.  As you can see in the peer group valuation table below, Gamevil is currently traded at a PE-ratio of 25x 2012 earnings and almost 17x 2013 earnings. Applying the same multiples to G5 Entertainment, we would get a fair share price of between SEK 70 (assuming 2012 EPS of 2.80) and SEK 88 (assuming 2013 expected EPS of SEK 5.2).  In other words: another proof that G5 Entertainment’s valuation is simply to low at current levels.

Mobile gaming peer valuation


Nordic Investor

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